This invention relates generally to methods and systems for stabilizing revenue derived by a variable annuity provider from variable annuities. More particularly, the present invention relates to methods and systems for providing variable annuities having death benefits funded or covered with Mortality and Expense (“M&E”) fees.
Variable annuities are generally contracts offered by a financial organization, such as an insurance company, which provide periodic annuity payments or a lump sum payment to the annuitant, such as the variably annuity contract owner, that begin at a predetermined or specified date. The term “variable annuity contract owner” or the “annuity owner” is used herein to denote a person that makes decisions regarding the annuity's investments, and have contractual rights, for example, to make withdrawals from the annuity, surrender, change the designated beneficiary or other terms of the annuity, etc. The annuity owner purchases a variable annuity by paying one or more premiums and the premiums may be deposited directly into a fixed account and/or investment divisions within the policy. The investment divisions, which provide the variable aspect of the annuity, are typically tracked in a separate account.
Variable annuities also typically provide death benefits that provide, for example, the return of the premium that has been paid (or cash value, if higher) in the event the annuitant dies before commencement of annuity payments to the annuitant or a third party. The risk assumed by the annuity provider in association with the death benefits is typically funded or covered at least in part with a M&E, assessed against the annuity, that is based on the value of the annuity investments, e.g., the value of the average daily balance in the separate investment divisions or accounts.
The investment account-based M&E fee and the revenue derived from the M&E fee, for instance, is largely dependent on the investments selected by the annuity owner and may consequently fluctuate with market conditions. The term “market conditions” is used herein as a general term to denote the overall economic environment or state of one or more markets, e.g., stock, bond, commodity, future, funds, etc., at any given time that may be reflected in the performance of investments or investment options available to annuity owners. The M&E fee and the revenue derived therefrom are therefore unpredictable.
Furthermore, in certain instances the M&E fee may not properly reflect the risk assumed by the company providing the variable annuity. For example, the provider may, in a declining market, be subject to a risk that is disproportionately higher than the revenue derived from the investment account-based M&E fee. There is therefore a need for methods and systems that, with respect to variable annuities, provide a level or stable M&E fee and consequently a level or stable revenue stream derived from M&E fees.